Markets are finally rediscovering their core role of price discovery. The US 10-year rate has risen 0.5% since the Fed cut its rate by 0.5%. And so the clock is now ticking for the biggest stock market bubble of our lifetimes.
Chemicals and the Economy
Stock market bubbles follow the same pattern, as Nvidia and Cisco confirm
Nvidia is a good company. And AI has proved useful for decades – flying planes, for example. But Silicon Valley is also very good at hype. And so Nvidia’s share price is more likely to follow Cisco’s path, than to keep on climbing forever.
Currency wars kick off as Japanese yen tumbles close to 38-year low
This is the 3rd time we have forewarned of an approaching crisis. Both previous times, ahead of the Great Financial Crisis and the Covid pandemic, we were told we “didn’t know what we were talking about”. Let’s hope its “3rd time lucky” and that “this time is different”.
US Treasury Secretaries change their minds on trade and inflation policies
Policymakers in the West and the East now find themselves adrift in increasingly stormy seas, without a compass. Their 2 key policy tools on trade and inflation have proved to be wrong. New thinking on the role of central banks is urgently required.
Demographics are destiny for the global economy, as central banks start to realise
For the past 15 years, since the Global Financial Crisis, central banks have claimed they could generate demand and economic growth via stimulus. Some $73tn of spending later, it is finally becoming clear to some of them, at least, that they can’t.
Now, we all have to start picking up the pieces of the problems they have created.
Investors hope (again) for interest rate cuts and a ‘Santa Claus rally’
investors are hoping Fed Chairman Jay Powell will soon signal a dramatic interest rate cut. And so they are positioning for a ‘Santa Claus’ rally. But most adults know that Santa Claus doesn’t really exist.
WeWork’s bankruptcy marks the beginning of the end for the stimulus economy
Essentially, the central banks thought that unlimited amounts of free money could reverse the impact of ageing populations. WeWork’s bankruptcy suggests that the bills for this mistake are now coming due, after 20 years of what the Wall Street Journal called “The most reckless monetary and fiscal experiment in history”
Asia’s debt crisis starts to approach its endgame as the yen continues to tumble
Last week, the Japanese yen fell through the US$ : ¥150 level for the first time since 1990. It has now fallen by nearly 50% against the US$ in the past two years. The currency is behaving as if Japan were a 3rd world country – whereas it is actually the 3rd largest economy in the world. Clearly, something is very wrong.
Central banks start to lose control of interest rates, and housing markets feel the pain
US 10-year interest rates are the world’s benchmark “risk-free” market. And as the chart shows, their yield has risen from 3.25% on 4 June to peak at 4.88% on Friday. Prices move inversely to yield. So that means prices have fallen 50% in 4 months.
Bond market downturn reaches “The End of the Beginning” as traders realise rates will be ‘higher for longer’
300+ years of Bank of England data shows that interest rates are typically inflation plus 2.5%. At today’s level, this would imply – US rates would be 3.7% + 2.5% = 6.2%: Japan would be 3.2% + 2.5% = 5.7%: Eurozone rates would be 5.3% + 2.5% = 7.8%; UK rates would be 6.7% + 2.5% = 9.2%
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